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Evidence Expert Testimony - Statements of Law by Financial Expert
© 2005 National Legal Research Group, Inc.
WASHINGTON: Aubin v. Barton, 123 Wash. App. 592, 98 P.3d 126 (2004).
The trial court erred by holding that a financial expert who is not an attorney cannot express an opinion as to the classification of certain stock options. Such an opinion is not an improper legal conclusion but, rather, a proper application of existing law to the facts.
A legal malpractice case from the State of Washington, a community property jurisdiction, makes a useful point regarding expert valuation testimony in property division cases generally.
The issue before the court was whether the husband's former divorce attorney, Barton, was negligent in failing to advise the husband that certain stock options constituted separate property. As a necessary element in establishing his claim of negligence, the husband had to prove that his stock options actually were separate property. Like most other jurisdictions, Washington holds that the classification of stock options depends upon the time at which the employee performed the services which earned the options. Options awarded in consideration of marital services are marital or community property; options awarded in consideration of premarital or postdivorce services are separate property. Options awarded shortly after the beginning or end of the marriage will often be consideration for both marital and nonmarital services, so that their classification must be determined by applying some form of allocation formula. See generally In re Marriage of Short, 125 Wash. 2d 865, 890 P.2d 12 (1995).
To prevent the husband from establishing that the options at issue were at least partly consideration for services rendered after the marriage, Barton retained an expert to analyze the options. The expert was a CPA and a certified valuation analyst, with substantial experience testifying in domestic relations cases, but he was not an attorney. Barton provided the CPA with information regarding the options themselves, and a copy of Short, the leading state opinion setting forth the basic rules for classifying stock options.
At trial, when Barton's attorney questioned the expert regarding the classification of the stock options, the husband's attorney objected, arguing that the questioning "asks for a legal conclusion from a layman." Aubin, 98 P.3d at 132. The trial court sustained the objection:
And I am going to sustain the objection and I will tell you why. The analyses of community property law in Washington are legal analyses. They have been made by Courts and lawyers writing in treatises and Courts following, sometimes Courts following those treatises. But it's a it is [a] fundamentally legal concept. I'm well aware of Mr. Kessler's experience and expertise as a certified public accountant and forensic accountant and that he has done a lot of work in this area and has thought about the mechanisms of what might feed into those legal analyses. But in the end, those are legal analyses. This being an action regarding legal malpractice, the experts who can testify must be lawyers. And I am going to continue to sustain objections to questions that ask Mr. Kessler to give opinions regarding legal characterization. Characterization of stock options is a legal question.
Id. On appeal, the Washington Court of Appeals held that the trial court had erred by sustaining the objections:
Barton offered Kessler's testimony on the question of fact upon which the ultimate legal conclusion to be drawn by the court would turn: What was the corporate purpose for this particular stock option grant?
We hold that a certified public accountant having the requisite training, experience and professional credentials to analyze and value stock options, and who has done the necessary groundwork before forming an opinion as to whether specific stock options were granted to compensate the employee for past, present, or future services is qualified to testify as an expert witness at a marital dissolution trial, and at the "trial within a trial" in a legal malpractice action, on that factual issue regardless of whether he or she also has a law degree. Here, Kessler was imminently qualified to render his professional opinion on that factual issue. Moreover, he was imminently qualified to discuss the ruling in Marriage of Short insofar as his understanding of the ruling affected his factual analysis. Certainly the ultimate interpretation of the court's ruling in Short requires legal analysis but this is not to say that a certified public accountant testifying as an expert witness regarding the purpose for a stock option grant cannot be heard to explain his or her understanding and application of the factors described by the Short court, in reaching the expert opinion. Indeed, as Kessler explained during voir dire, the professional standards that govern certified public accountants require that they be able to read, understand, and apply relevant case law in the course of performing forensic support services.
Id. at 135.
The fundamental error made by the trial court was that it had failed to distinguish between determining the law and applying the law. Financial experts are not qualified to determine the law, but they are certainly qualified to apply the law to the facts. Indeed, when the facts involve the complex affairs of businesses, a financial analyst is usually better qualified to apply the law than an attorney or a judge. That is why such analysts qualify as expert witnesses to begin with.
In addition, there is a significant distinction between stating the law for purposes of advice or persuasion and stating the legal assumptions which underlie a factual analysis. The weight of a financial expert's opinion often depends upon whether that opinion is based upon correct legal principles. While a financial expert is not qualified to argue the law or give legal advice, such an expert is absolutely required to state the legal principles which underlie the expert's application of the law to the facts. In other words, to apply the law to the facts, the expert must first state the law. Without such a statement, the court would have no way to determine whether the expert's financial analysis was based upon correct legal principles. A financial expert who states his legal assumptions is not stating an improper legal conclusion.
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